Q&A: Lenovo CEO On How To Turn Around Motorola

Lenovo Group just reported another quarter of solid earnings, but investors are paying a lot more attention to the Chinese personal-computer maker’s two planned acquisitions: one deal to buy Google’s Motorola Mobility handset business for $2.91 billion, and the other to buy IBM 's low-end server unit for $2.3 billion.

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Here’s what Lenovo’s Chief Executive Yang Yuanqing and Chief Financial Officer Wong Waiming had to say about the acquisitions. Below are edited excerpts from a telephone interview with Yang and an analyst conference call.

WSJ: How do you plan to turn around Motorola’s unprofitable business?

Yang: We have already identified areas where we can cut expenses. With the combined scale of Lenovo and Motorola after the acquisition, we can significantly reduce costs in terms of material procurement and supply chain. When we complete the acquisition, from day one, we can start working on those cost synergies. Most likely it will take a couple of quarters to turn around the Motorola business. But I definitely believe we can have a profitable business over time. We plan to launch more products under the Motorola brand to build a stronger portfolio. We will also re-introduce the Motorola brand in China by taking advantage of Lenovo’s operational resources. Motorola is still a well-known, respected brand, so we believe we can improve our position not only in mature markets but also in China and other emerging markets.

WSJ: What are your plans for Motorola’s U.S. operations, including its partnership with Flextronics to assemble some of its products in the U.S.?

Yang: In my understanding they [Motorola and Flextronics] have very limited manufacturing operations in the U.S. for some customized products. If U.S. production benefits customers we would keep that. But meanwhile, I also believe Lenovo’s efficient operational platform will help Motorola’s business improve its profitability.

WSJ: Investors are worried that Motorola’s steep loss last year will hurt Lenovo’s earnings. What is your view?

Yang: For the short term, it could have a certain negative impact on our performance. But for the long term, I think this acquisition will be good for our shareholders and for the future of Lenovo. The Motorola deal and the IBM server deal both fit well in our strategy and they will build the foundation for our long-term growth. It’s very important for us to make those two acquisitions happen. Motorola and Lenovo’s mobile businesses are very complementary. When Lenovo tries to enter more mature markets, Motorola’s brand recognition and strong relationships with carriers will help.

WSJ: Some analysts and investors say striking two massive deals simultaneously is too aggressive. What do you think of that view?

Yang: This is not too aggressive. Those deals fit into our strategy, and we designed that strategy long time ago. This time we were fortunate to find two opportunities at the same time. Motorola and the IBM server business are both very rare resources. And we have enough resources to deal with both acquisitions simultaneously. We have the capability to digest them.

WSJ: How will the two deals affect Lenovo’s finances?

Wong: We have $3 billion in cash at hand, and we have also raised $1.7 billion in loans. This means we have $4.7 billion in cash that we can use. And the cash portion of our payments for the two acquisitions will be about $2.7 billion. So even after we complete the deals, we will still have about $2 billion in cash. Given that we will also have cash flow from our operations, we can continue to fund our growth.